Growth forecast cut unavoidable: FS

July 28, 2022

Financial Secretary Paul Chan:

The increase in (the) US interest rate, under Hong Kong's Linked Exchange Rate System, will impact our interest rate. Over the past two months, you have seen the interbank interest rate rise, although the prime rate remains intact.

The rate and the magnitude of increase in the interest rate depends very much on the liquidity in the market and also the liquidity of individual banks. At the moment, we estimate that under the Linked Exchange Rate System, when (the) US interest rate continues to hike, unavoidably we (will) have to increase our interest rate. But the pacing and the magnitude (of rate hikes) need not be on a lockstep basis.

With the increasing interest rate in the US as well as many of the developed economies, the external economic situation will continue to worsen. So the export performance of Hong Kong will naturally be affected.

On the other hand, if the COVID-19 situation is largely under control, private consumption, with the launch of the 2022 (Phase II) Consumption Voucher Scheme, will have increased momentum in the second half of this year. So by and large, our assessment is that the economic performance of Hong Kong in the second half (of the year) would be better than in the first half.

But taking the year as a whole, unavoidably we may need to revise our GDP (gross domestic product) growth forecast. At the moment, the Government Economist is examining various data and doing an assessment on the economic outlook. The details will be announced in the middle of August.

Financial Secretary Paul Chan today said Hong Kong’s economic growth forecast for this year will likely be adjusted downwards, citing the worsening external economic situation arising from the recent interest rate rise.

The US Federal Reserve raised the interest rate by 75 basis points. In Hong Kong, following this upward adjustment in the target range for the US federal funds rate, the Monetary Authority announced that the Base Rate was adjusted upward to 2.75% with immediate effect according to a pre-set formula.

Meeting the media today, Mr Chan said: “The increase in (the) US interest rate, under Hong Kong’s Linked Exchange Rate System, will impact our interest rate. Over the past two months, you have seen the interbank interest rate rise, although the prime rate remains intact.

“The rate and the magnitude of increase in the interest rate depends very much on the liquidity in the market and also the liquidity of individual banks.

“At the moment, we estimate that under the Linked Exchange Rate System, when (the) US interest rate continues to hike, unavoidably we (will) have to increase our interest rate. But the pacing and the magnitude (of rate hikes) need not be on a lockstep basis.”

Looking ahead, Mr Chan said although Hong Kong’s economic performance in the second half of the year should be better than in the first half, the economic growth forecast for the whole year would inevitably have to be adjusted downwards.

“With the increasing interest rate in the US as well as many of the developed economies, the external economic situation will continue to worsen. So the export performance of Hong Kong will naturally be affected.

“On the other hand, if the COVID-19 situation is largely under control, private consumption, with the launch of the 2022 (Phase II) Consumption Voucher Scheme, will have increased momentum in the second half of this year. So by and large, our assessment is that the economic performance of Hong Kong in the second half (of the year) would be better than in the first half.

“But taking the year as a whole, unavoidably we may need to revise our GDP (gross domestic product) growth forecast. At the moment, the Government Economist is examining various data and doing an assessment on the economic outlook. The details will be announced in the middle of August.”